Stockholders' Equity and Stock-Based Compensation

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

Stockholders' Equity and Stock-Based Compensation

Stock Repurchase Programs

In April 2019, our board of directors authorized a $1.0 billion stock repurchase program (the "Repurchase Program"). This authorization allowed us to repurchase shares of our common stock over three years, and we completed our repurchases under the Repurchase Program during the fourth quarter of 2021. In the fourth quarter of 2021, our board of directors authorized an additional $1.0 billion stock repurchase program (the “New Repurchase Program”), which allows us to repurchase shares of our common stock to be funded from working capital. Repurchases may be made at management’s discretion from time to time on the open market, through privately negotiated transactions, transactions structured through investment banking institutions, block purchases, trading plans under Rule 10b5-1 of the Exchange Act, or a combination of the foregoing. The New Repurchase Program commenced in November 2021 and expires on the three year anniversary thereof. The New Repurchase Program does not obligate us to acquire any of our common stock, and may be suspended or discontinued by us at any time without prior notice. As of December 31, 2021, the remaining authorized amount for stock repurchases under the New Repurchase Program was approximately $927.0 million.

A summary of the stock repurchase activity under the Repurchase Programs is as follows, as adjusted to give effect to the Stock Split (in thousands, except per share amounts):


	Year Ended December 31,
	2021		2020
Aggregate purchase price	$	411,645	$	395,173
Shares repurchased	4,537		8,048
Average price paid per share	$	90.73	$	49.11

The aggregate purchase price of repurchased shares of our common stock is recorded as a reduction to retained earnings. All shares repurchased under the Repurchase Programs have been retired.

2014 Equity Incentive Plan

In April 2014, the board of directors and stockholders approved the 2014 Equity Incentive Plan (the “2014 Plan”), effective on the first day that our common stock was publicly traded, and simultaneously terminated the 2004 and 2011 equity plans as to future grants. However, these plans will continue to govern the terms and conditions of the outstanding options previously granted thereunder.

Awards granted under the 2014 Plan could be in the form of Incentive Stock Options (“ISOs”), Nonstatutory Stock Options (“NSOs”), Restricted Stock Units (“RSUs”), Restricted Stock Awards (“RSAs”) or Stock Appreciation Rights (“SARs”). The number of shares available for grant and issuance under the 2014 Plan increases automatically on January 1 of each year commencing with 2016 by the number of shares equal to 3% of the outstanding shares of our common stock on the immediately preceding December 31, but not to exceed 50,000,000 shares (the “2014 Plan Evergreen Increase”), unless the board of directors, in its discretion, determines to make a smaller increase. Effective January 1, 2021, our board of directors authorized an increase

of 9,140,912 shares to the shares available for issuance under the 2014 Plan, as adjusted to give effect to the Stock Split. In fiscal 2020, in connection with our acquisition of Awake Security, we assumed the stock options outstanding under the Awake Security 2014 Equity Incentive Plan and registered an additional 461,352 shares to be available for future issuance, as adjusted to give effect to the Stock Split. As of December 31, 2021, there remained approximately 88.0 million shares available for issuance under the 2014 Plan. In February, 2022, our board of directors authorized an increase of 9,230,434 shares to shares available for future issuance under the 2014 Plan effective January 1, 2022.

2014 Employee Stock Purchase Plan

In April 2014, the board of directors and stockholders approved the 2014 Employee Stock Purchase Plan (the “ESPP”). The ESPP became effective on the first day that our common stock was publicly traded. The number of shares reserved for issuance under the ESPP increases automatically on January 1 of each year by the number of shares equal to 1% of our shares outstanding immediately preceding December 31, but not to exceed 10,000,000 shares, unless the board of directors, in its discretion, determines to make a smaller increase. Effective January 1, 2021, our board of directors authorized an increase of 3,046,968 shares as adjusted to give effect to the Stock Split to shares available for issuance under the ESPP. As of December 31, 2021, there remained 18.0 million shares available for issuance under the ESPP. In February, 2022, our board of directors authorized an increase of 3,076,811 shares to shares available for issuance under the ESPP effective January 1, 2022.

Under our ESPP, eligible employees are permitted to acquire shares of our common stock at 85% of the lower of the fair market value of our common stock on the first trading day of each offering period or on the exercise date. Each offering period lasts approximately two years starting on the first trading date after February 15 and August 15 of each year. Participants may purchase shares of common stock through payroll deductions up to 10% of their eligible compensation, subject to Internal Revenue Service mandated purchase limits.

During the year ended December 31, 2021, we issued 458,284 shares at an average purchase price of $46.50 under our ESPP, as adjusted to give effect to the Stock Split.

Stock Option Activities

The following table summarizes the option activities and related information, as adjusted to give effect to the Stock Split (in thousands, except years and per share amounts):


	Number of Shares Underlying Outstanding Options	Weighted- Average Exercise Price per Share		Weighted- Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value
Balance—December 31, 2020	13,719	$	11.29	3.6	$	841,659
Options granted	—	—
Options exercised	(4,941)	9.30
Options canceled	(93)	9.55
Balance—December 31, 2021	8,685	$	12.45	2.8	$	1,140,369
Vested and exercisable—December 31, 2021	6,650	$	9.70	2.4	$	891,466

We did not grant any stock options in the year ended December 31, 2021. The weighted-average grant-date fair value of options granted during the years ended December 31, 2020 and 2019 was $46.24 and $26.86 per share, respectively, as adjusted to give effect to the Stock Split. The aggregate intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019 was $410.9 million, $245.9 million and $323.1 million, respectively. The total fair value of options vested for the years ended December 31, 2021, 2020 and 2019 was approximately $25.3 million, $20.0 million and $23.0 million, respectively.

Restricted Stock Unit (RSU) Activities

The following table summarizes the RSU activities and related information, as adjusted to give effect to the Stock Split (in thousands, except per share amounts):


	Number of Shares	Weighted- Average Grant Date Fair Value Per Share
Unvested balance—December 31, 2020	7,263	$	53.92
RSUs granted (1)	3,487	93.18
RSUs vested	(2,265)	53.15
RSUs forfeited/canceled	(664)	61.74
Unvested balance—December 31, 2021	7,821	$	70.98

(1) Included in this amount are 268,000 performance-based RSUs (“PRSUs”, as adjusted to give effect to the Stock Split) to our CEO and other executive officers that include both service and performance-based conditions. These PRSUs will vest over three to four years, and the ultimate number of shares eligible to vest will vary between 0% and 200% of the amount granted based on the achievement of certain performance metrics over the performance period and each holder’s continued employment with Arista. As of December 31, 2021 we expect the achievement level of such awards to be at the higher end of the performance range.

The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2021, 2020 and 2019 was $93.18, $54.11 and $60.53 per share, respectively, as adjusted to give effect to the Stock Split. The total fair value of RSUs vested for the years ended December 31, 2021, 2020 and 2019 was approximately $120.4 million, $85.4 million, and $65.7 million, respectively.

Stock-Based Compensation Expense

The following table summarizes the stock-based compensation expense related to our equity awards (in thousands):


	Year Ended December 31,
	2021		2020		2019
Cost of revenue	$	7,444	$	6,272	$	4,637
Research and development	99,770		79,913		53,068
Sales and marketing	46,521		34,944		29,168
General and administrative	33,140		15,913		14,407
Total stock-based compensation	$	186,875	$	137,042	$	101,280

Determination of Fair Value

We record stock-based compensation awards based on fair value as of the grant date. We value RSUs at the market close price of our common stock on the grant date. For option awards and ESPP offerings, we use the Black-Scholes option pricing model to determine fair value. We recognize such costs as compensation expense generally on a straight-line basis over the requisite service period of the award.

Stock Options

We did not grant any stock options in the year ended December 31, 2021. For the years ended December 31, 2020 and 2019, the fair value of each stock option granted under our plans was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:


	Year Ended December 31
	2020		2019
Expected term (in years)	5.0		6.9
Risk-free interest rate	0.4	%	2.5	%
Expected volatility	43.5	%	42.8	%
Dividend rate	—	%	—	%

ESPP

The following table summarizes the assumptions relating to our ESPP:


	Year Ended December 31,
	2021		2020		2019
Expected term (in years)	1.2		1.6		1.1
Risk-free interest rate	0.1	%	0.4	%	1.8	%
Expected volatility	40.2	%	45.1	%	42.5	%
Dividend rate	—	%	—	%	—	%

As of December 31, 2021, there were $519.7 million of unrecognized compensation costs related to all unvested awards. The unamortized compensation costs are expected to be recognized over a weighted-average period of approximately 3.3 years.